Ibovespa Falls as Itau Leads Banks Lower After S&P's Rating Cut

  • Financial companies are the worst performers on the Ibovespa
  • S&P lowers bank ratings after downgrading sovereign Wednesday

The Ibovespa fell for the first time in five days as Itau Unibanco Holding SA led a decline among Brazilian banks after Standard & Poor’s cut ratings of several lenders further into junk territory following a sovereign downgrade.

Itau contributed the most to the decline of the benchmark index as it fell the most in a week. Financial stocks were the worst performers among 10 industry groups in Brazil. 

Two dozen Brazilian financial-services firms had their credit grades lowered by S&P Wednesday, with Itau cut to two levels below investment grade, the same as Brazil’s government. Brazil is in its worst recession in a century and political turmoil has hindered the efforts of President Dilma Rousseff to stem budget deficits.

"Funding costs for banks have been increasing in the past months because of the deterioration of the situation in Brazil and should rise more after this downgrade,” Daniel Weeks, an economist at Garde Asset Management, said from Sao Paulo. "The situation of the Brazilian economy is deteriorating very fast, so more downgrades are expected."

The Ibovespa dropped 0.8 percent to 41,289.45 at 10:38 a.m. in Sao Paulo as two thirds of its 61 stocks declined. Itau lost 2.7 percent while the MSCI Brazil Financials Index declined 2.9 percent.

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